Finmar
Modules
My Progress
Answers for Module 3: Chapter 9-10
Review the correct answers and explanations for each question in this module.
Q1: What factor complicates the valuation of ordinary equity shares?
Q2: What does the Finite-Period Dividend Valuation model assume?
Q3: In the Infinite-Period Dividend Valuation model, what form does the investor's return take?
Q4: The Gordon Constant Growth Dividend Model is based on what key assumption?
Q5: What is the characteristic of a preferred share that makes it a "hybrid security"?
Q6: What is a perpetuity in the context of preferred share valuation?
Q7: What is the "Yield to Maturity" (YTM) of a bond?
Q8: What is the primary purpose of the Foreign Exchange (FX) Market?
Q9: What was the role of the International Monetary Fund (IMF) from the end of WWII until the early 70s?
Q10: What happens to a country's goods abroad when its currency appreciates?
Q11: How does high inflation typically affect the value of a currency?
Q12: What does the theory of Purchasing Power Parity (PPP) suggest?
Q13: What is the key difference between a spot transaction and a forward transaction in the FX market?
Q14: What is a "direct quote" in foreign exchange?
Q15: What is arbitrage in the context of foreign exchange markets?
Q16: According to the theory of purchasing power parity, what should happen in the long run if a country's price level rises relative to another country's?
Q17: How does the mortgage market differ from stock and bond markets?
Q18: What are discount points on a mortgage loan?
Q19: What is the purpose of a down payment on a mortgage?
Q20: What does it mean for a mortgage loan to be "fully amortized"?
Q21: What is the main difference between a fixed-rate mortgage and an adjustable-rate mortgage (ARM)?
Q22: For whom is a Graduated-Payment Mortgage (GPM) most useful?
Q23: What is a key characteristic of a derivative?
Q24: What is hedging in the context of derivatives?
Q25: What problem does the securitization of mortgages aim to solve for lenders?
Q26: What is a "second mortgage"?
Q27: According to the Supernormal Growth Dividend Model, how is the value of a share calculated?
Q28: Why do investors typically require a higher rate of return on preferred shares compared to the same company's debt?
Q29: What is the "current yield" of a bond?
Q30: In foreign exchange, what would be the effect of a country increasing its trade barriers?
Q31: What is a Reverse Annuity Mortgage (RAM) designed to do?
Q32: What does a "speculative forward contract" do?